Mon, Jun 11, 2012 - Page 10 News List

Germany’s economic health takes tumble

OPTIMISTIC:Although nearly 80% of Germans believe the eurozone debt crisis will get worse before it gets better, the Bundesbank still upgraded its forecast for the economy

AFP, FRANKFURT, GERMANY

As one eurozone country after another succumbs to the fevers of the debt crisis, Germany — the region’s biggest — seems so far to have remained largely immune. However, the latest data suggest that the robustness of the German economy could now also be faltering, even as the Bundesbank continues to give it a clean bill of health.

All of the key economic data last week surprised to the downside.

New car registrations — a gauge of demand in one of the most important sectors of the German economy — dropped by 4.8 percent last month. Industrial orders fell by a bigger-than-expected 1.9 percent in April and industrial output was down even more by 2.2 percent. The monthly trade data disappointed, too, with exports down 1.7 percent and imports dropping 4.8 percent in April.

For Germany’s traditionally -export-driven economy, such signs are worrying. It already went briefly into reverse at the end of last year, contracting by 0.2 percent in the final quarter. However, it appeared to shrug off the momentary downturn again quickly, expanding by 0.5 percent in the first three months of this year thanks to robust exports and healthy consumer spending.

Nevertheless, with sentiment indicators, such as the ZEW barometer of investor confidence and the Ifo business climate index, now firmly heading south, and one set after another of real economic data failing to meet expectations, analysts are concerned that Germany’s run of good health is over.

The trade data, in particular, were a “clear signal that the German economy is beginning to suffer from the effects of the current crisis,” Newedge Strategy analyst Annalisa Piazza said.

“Demand is fading, both domestically and externally,” she said.

Christian Schulz of Berenberg Bank said the drop in exports should not come as a surprise, “given the continued recession in some European export markets and the slowdown in emerging markets.”

The sharp drop in imports, however, meant that the second quarter “started on a weak note. The trade data confirm the picture painted by industrial orders and production,” the analyst said.

“German GDP growth in the second and third quarters could thus turn negative again, before rebounding toward the end of the year,” Schulz said.

Commerzbank economist Ulrike Rondorf said the resurgence in uncertainty from the debt crisis “is likely to contribute to the German economy posting only slight growth overall in the coming quarters.”

The German Ministry of Economics and Technology is concerned that the euro crisis and slowing output worldwide pose growing risks for Germany. The general population is also worried.

A poll conducted by ARD public television found that nearly four out of five Germans say the eurozone debt crisis will get much worse before it gets better, even if a majority still believes the single currency will survive.

However, flying in the face of all this gloom and doom, the Bundesbank upgraded its forecast for growth of the German economy to 1 percent this year from a previous prognosis of 0.6 percent.

The Bundesbank acknowledged the current “difficult environment” and noted that demand for German-made goods from a number of eurozone member states was suffering.

“At the same time, the global economy has regained its footing and that means demand for German exports from countries outside Europe is on the rise,” it said.

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